SMM Daily Review - 2011/3/4 Base Metals Market

SHANGHAI, Mar. 7 (SMM) –
Copper
SHFE 1105 copper contract prices, the most active one, opened up RMB 40/mt at RMB 74,450/mt on Friday. The copper for delivery in three months fell back after reaching RMB 74,800/mt, and slid all the way to the low level of RMB 74,000/mt seen a day earlier, with support available.  In the afternoon session, SHFE three-month copper contract prices rallied with LME copper prices returning above USD 9,900/mt, and rising China's Shanghai composite index, recouping daily losses and reaching as high as RMB 74,900/mt. Finally, the copper for delivery in three months in the SHFE market closed at RMB 74,720/mt, up RMB 310/mt, or a gain of 0.42%. Positions for SHFE three-month copper contract prices were down 2,578 lots to 168,172 lots, and trading volumes were down 1,442 lots to 133,012 lots. Based on market movements on Friday, SHFE 1105 copper contract prices continued to meet resistance at RMB 75,000/mt, but were able to find support at RMB 74,000/mt.  SHFE copper market is still tracking movements in the LME copper market, but is waiting for direction from the ongoing NPC and CPPCC meetings. It is expected that SHFE copper market will continue to fluctuate at high levels. Particular attention should be paid to the correlation between domestic stock markets and commodity futures markets in the short term.

In the spot market, discounts in the Shanghai market were offered between negative RMB 350-250/mt. Supply of standard-quality copper was unavailable, while that of high-quality copper was also limited. Hence, discounts narrowed gradually from negative RMB 350-250/mt to negative RMB 320-220/mt. The price difference between high-quality and standard-quality copper decreased to RMB 50/mt.  Traded prices for standard-quality copper were between RMB 73,100-73,250/mt, and RMB 73,150-73,350/mt for high-quality copper in the morning business. In the afternoon session, copper futures prices rallied, with the price gap reaching RMB 300-500/mt compared with levels at the midday. Cargo-holders remained unwilling to move goods due to optimistic outlook, and market supply was still tight. Discounts for standard-quality copper were firmed at negative RMB 300/mt, and discounts for high-quality copper were negative RMB 250/mt. Traded prices for standard-quality copper were between RMB 73,150-73,450/mt, and RMB 73,200-73,500/mt for high-quality copper in the afternoon business. Some downstream producers with optimistic outlook were active in building up stocks, and traders also replenished goods at low levels, leaving overall transactions moderate. According to data tallied by Shanghai Futures Exchange (SHFE), copper inventories were down 336 mt last week. Inventory declines for second straight week indicated improvement in consumption after the Chinese New Year holiday.  Markets are optimistic towards the outlook, believing consumption will improve gradually, and that will support copper prices.

Aluminum
SHFE 1105 aluminum contract prices opened slightly lower at RMB 16,980/mt on Friday, and later climbed rapidly to RMB 17,060/mt following other base metals prices. Later, SHFE 1105 aluminum contract prices edged down and kept fluctuating around RMB 17,000/mt, with prices finally closing at RMB 16,990/mt, up RMB 5/mt compared with the previous trading day, or up 0.03%. Trading volumes of SHFE 1105 aluminum contract were 25,496 lots and total positions soared by 13,014 lots. SHFE aluminum contracts were mixed on Friday, and the pessimistic market sentiment caused SHFE 1105 aluminum contract prices to fail to hold steady at RMB 17,000/mt. SMM predicts SHFE 1105 aluminum contract prices will continue to fluctuate narrowly around RMB 17,000/mt in the short term amid intense struggles between long and short investors. The latest data shows SHFE aluminum inventories fell by 3,831 mt to 420,059 lots.

Traded prices for spot aluminum in east China were between RMB 16,600-16,640/mt, with discounts of RMB 80-120/mt against SHFE current-month aluminum contract prices. SHFE current-month aluminum contract prices got support at RMB 16,700/mt in the morning session, and spot aluminum market confidence improved, and spot aluminum prices were firm as well. Traders moved goods aggressively, while downstream processors only made limited purchases at lower prices, keeping overall market sentiment neutral. SHFE current-month aluminum contract prices fluctuated lower in the afternoon session, and mainstream traded prices for spot aluminum fell gradually in response, with limited deals made at RMB 16,600/mt.

Lead
In the morning session last Friday, downstream producers in China’s domestic lead markets were largely staying out of the market due to LME lead prices losses after opening, keeping trading sentiment muted. Supply of lead from Gejiu, Yunnan province in Shanghai markets was limited, so traders insisted on firm offers, with prices rising to RMB 17,500/mt. Price gap between lead from Gejiu and well-known branded lead narrowed further, with traded prices for the later unchanged at RMB 17,600/mt. In the afternoon, LME lead prices surged, but trading sentiment in domestic lead markets remained quiet.

Zinc
Last Friday, SHFE 1105 zinc contract prices fluctuated between RMB 19,000-19,500/mt, finding support at RMB 19,000/mtm, but with prices fluctuating at low levels due to weak fundamentals. Market players all took a wait-and-see attitude since the National People’s Conference and the Chinese People’s Political Consultative Conference are opening, causing total positions of SHFE 1105 zinc contract continued to decrease by 258,898 lots by last Thursday. Spot transactions were also weak, with downstream buyers purchasing only modestly at lower prices, believing zinc prices may fall further. Spot zinc was traded between RMB 18,500-18,800/mt. Traders were cautious given unfavorable spot discounts of RMB 550-650/mt.

Spot zinc prices fluctuated last week, and downstream buyers purchasing modestly only at lower prices, leaving the market quiet. Inventories in east China remained unchanged at 466 kt, while inventories in south China grew slightly by 3,000 mt to 143 kt. Goods supplies in north China were directly from smelters, who were unwilling to sell goods at lower prices, causing inventories in north China fell by 3,000 mt to 10 kt.

Tin
Last Friday in Shanghai tin markets, traded prices continued to rise, with tin from Yunnan Tin Group, Gejiu Zili Metallurgy Company, and some minor branded tin traded between RMB 201,500-203,000/mt. Trading sentiment was still muted, as smelters remained unwilling to move goods, keeping market supply limited.

Nickel
LME nickel futures contract for delivery in three months opened at USD 28,600/mt and closed at USD 28,725/mt on March 3, up by USD 125/mt from a day earlier, with the highest price at USD 29,087/mt and the lowest price at USD 28,600/mt. Daily trading volumes were 2,101 lots and positions were 105,510 lots. LME nickel futures contract for delivery in three months moved stably in the morning Asian trading hours on March 4 after opening at USD 28,600/mt, and fluctuated higher in the afternoon trading hours, hitting the highest at USD 29,200/mt. LME nickel inventories were down by 156 mt to 129,858 mt.                 

Boosted by slight rally of LME nickel prices on March 3, coupled with upward trend of LME nickel prices on March 4, prices in the Shanghai nickel spot market also advanced to certain extent. Mainstream traded prices of nickel from Jinchuan Group were in the RMB 215,500-216,000/mt range, and mainstream traded prices of nickel from Russia were in the RMB 214,000-214,300/mt range. Transactions were largely made during the morning trading hours, and became fewer in the afternoon trading hours as traders were reluctant to move goods for the expectation of higher prices when spot prices were pushed by LME nickel price rally. Transactions were dominated by nickel from Russia and were largely done among traders.

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